Episode•September 20, 2022•30 min

Tiffany's Take: Student Loan Forgiveness | Ep. 139

Every Tuesday, Tiffany answers one of your submitted questions. To submit a question for an upcoming episode, visit here: https://www.moneytalkwitht.com/asktiffany. Connect with Tiffany on Social Media Facebook: Money Talk With Tiff Twitter: @moneytalkwitht Instagram: @moneytalkwitht LinkedIn: Tiffany Grant This podcast uses the following third-party services for analysis: Podcorn - https://podcorn.com/privacy OP3 - https://op3.dev/privacy

Apple Podcasts Spotify YouTube Overcast Amazon Music

Key Takeaways

1
Biden's student loan forgiveness plan has three main components
Final extension of payment pause through December 31, 2022 with payments resuming January 2023
Up to $20,000 forgiveness for Pell Grant recipients and $10,000 for non-Pell recipients if income is under $125,000 (single) or $250,000 (household)
Expanded Public Service Loan Forgiveness (PSLF) eligibility for nonprofit, military, and government employees through October 31, 2022
2
Payments made during the pandemic pause may be refunded automatically
More than 9 million borrowers made payments between April 2020 and March 2022
Refunds are automatic if you still have the same servicer and outstanding balance
If you paid off your loan or refinanced, you must contact your previous servicer to request refunds dating back to March 13, 2020
3
Seven states may tax the forgiven amounts as income
States considering taxation: Arkansas, California, Indiana, Minnesota, Mississippi, North Carolina, and Wisconsin
North Carolina has a flat 4.99% rate ($499-$998 tax liability depending on forgiveness amount)
Tax-saving strategies like HSA/FSA contributions can help offset potential state tax liability
4
Application timeline is critical for timely relief
Applications open early October - sign up for notifications at the Department of Education website
Apply by November 15 to receive relief before the payment pause expires
Relief typically processed within 4-6 weeks of application submission

Intro

Tiffany Grant breaks down the Biden administration's student loan forgiveness plan, covering eligibility, timelines, refunds, and state tax implications for borrowers.
Tiffany Grant is a financial coach and host of the Money Talk with Tiff podcast, providing weekly personal finance education and answering listener questions every Tuesday.

Website Facebook Twitter Instagram LinkedIn

– Overview of Biden's Student Loan Forgiveness Plan

Tiffany outlines the three-part plan: final payment pause extension, targeted debt relief for low/middle-income borrowers, and making the repayment system more manageable for current and future borrowers.

He made an announcement saying what the plan would look like. So there's a few parts to the plan.
– Tiffany Grant

– Part 1: Final Payment Pause Extension

The payment pause is extended through December 31, 2022 - the final extension. Payments resume January 2023 for federal student loan borrowers regardless of forgiveness eligibility.

Borrowers should contact their specific loan servicer as individual circumstances may affect when payments actually begin.

– Part 2: Targeted Debt Relief Amounts

Pell Grant recipients with loans held by the Department of Education get up to $20,000 cancellation. Non-Pell recipients get up to $10,000. Forgiveness is capped at your actual remaining balance.

Income limits: $125,000 for single filers, $250,000 for married couples filing jointly.

– Part 2: Public Service Loan Forgiveness Expansion

Nonprofit, military, and government employees may qualify for complete loan forgiveness through expanded PSLF eligibility. Temporary changes expire October 31, 2022.

Apply through your loan servicer or visit PSLF.gov for more information.

– Application Process and Timeline

8 million borrowers will receive automatic relief based on existing income data. Everyone else should apply when the simple application launches in early October.

They are advising that people apply before November 15th in order to receive relief before the payment pause expires on December 31st.
– Tiffany Grant

– Part 3: Future Repayment System Changes

Monthly payments reduced from 10% to 5% of discretionary income for undergraduate loans. Loan balances forgiven after 10 years (instead of 20) for balances of $12,000 or less.

Unpaid monthly interest will be covered - loan balances won't grow even if payments are $0 due to low income.

– Payment Refunds for Pandemic-Era Payments

Borrowers who made payments during the pause (March 2020 onward) will be automatically refunded if they have outstanding balances with the same servicer.

If you paid off your loan or refinanced, contact your previous servicer to request refunds. FFEL loans are not eligible for refunds.

– State Taxation of Forgiven Amounts

Seven states may tax forgiveness as income: Arkansas (2-4.9%), California (1-12.3%), Indiana (3.23% flat plus county tax), Minnesota (5.35-9.85%), Mississippi, North Carolina (4.99% flat), and Wisconsin (3.54-5.3%).

I feel like we should all be prepared just in case because you know how it is sometimes y'all where one government will do something. Then they're like, oh, they got a lot of money from that. Let's see if we can do it.
– Tiffany Grant

Resources

Topics

student loansloan forgivenessBiden administrationfederal student aidPell GrantsPSLFstate taxespayment pauserefundsincome-driven repayment